Has Valeant Stock Bottomed?
There’s a cautiously cheerful wind blowing around Valeant Pharmaceuticals Intl Inc (NYSE:VRX). Valeant stock is trading 6.6% higher than a month ago and 15.5% higher than a week ago. In fact, Valeant is back at the level at which it was trading last June, moving above $24.44 a share. That is ever closer to the $28.00 consensus price target. Indeed, the chart suggests exactly that after the pick crossed the $22.00-per-share resistance level.
Canaccord Genuity has reiterated a “Hold” recommendation for Valeant stock. The reason for this recent rise of favorable sentiment is that an advisory committee has recommended that the Food and Drug Administration (FDA) has approved “Brodalumab,” a treatment for psoriasis. The committee has given the new treatment unanimous approval, even as it urged Valeant to issue special precautionary warnings.
But That’s Not All—There’s Also Relistor
The FDA also approved Valeant’s other new drug, “Relistor.”
Served up in tablet form, Relistor addresses a common but not so dramatic source of concern for much of the American population: constipation. The FDA has passed Relistor (no pun intended) in tablet form, rather than the originally developed injectable-only med. (Source: “Valeant wins FDA oral Relistor approval and $1B sales potential,” FierceBiotech, July 20, 2016.)
Relistor could prove to be a major billion-dollar blockbuster—or clog buster, rather. The only problem for Relistor is that like constipation itself, it’s not out yet. Still, Valeant expects to be able to sell the drug in the U.S. by its third quarter. Neil Maruoka at Canaccord believes the product has a good chance of obtaining FDA sales approval by November 16.
The double FDA approval for both drugs, which address common health concerns, is a decidedly strong bullish mover for Valeant stock. Brodalumab specifically could be a catalyst for a bullish reversal of Valeant stock. Analysts covering Valeant closely, including Maruoka, suggest the drug could contribute significantly to Valeant’s front line. (Source: “Canaccord Shares Thoughts on Valeant Pharmaceuticals Intl Inc (VRX) as FDA Holds Advisory Committee for Brodalumab,” Smarter Analyst, July 19, 2016.)
To get an idea of how profitable psoriasis and skin treatments are for pharma sector companies, take Johnson & Johnson (NYSE:JNJ) as an example. Johnson & Johnson stock gained 7.88% in the past month alone and its second-quarter financials all but confirmed the strength of its pharma division and skincare products. (Source: “Johnson & Johnson Keeps Growing on Pharma Strength,” Madison.com, July 19, 2016.)
Psoriasis, eczema, and rashes—the itchy problems—are good for business and Valeant could soon have a major psoriasis blockbuster in this market. In fact, the FDA found that Brodalumab outperformed Johnson & Johnson’s “Stelara” in treating psoriasis in a head-to-head comparative study. (Source: “Valeant Pharmaceuticals: Two for Two,” Barron’s, July 19, 2016.)
Besides being in the sights of U.S. politicians because of steep increases in the price of some of its drugs—the Securities and Exchange Commission investigated Valeant in the past year—the company has a new and optimistic CEO, Joseph Papa. He hopes to be able to stabilize the company within six months. The FDA has certainly made his task easier and it is a reassuring sign for investors. With many of the problems now behind it, Valeant can resume thinking about growth and the FDA has delivered the first major bullish signal for the company in 2016.
The Bottom Line on VRX Stock
Valeant stock has not yet absorbed the full—favorable—implications of the FDA approvals. The drugs in question address frequent problems, which affect millions of people around the world to various degrees, promising high sales.
Analysts Rodman and Renshaw have set a $90.00 price target on Valeant (source: Ibid), while more conservative analysts predict a short-term price target of $43.72. (Source: “Higher Price Target Forecasts: Valeant Pharmaceuticals International, Inc. (NYSE:VRX) , Grifols, S.A. (NASDAQ:GRFS),” IS Stories, June 23, 2016.)
Valeant stock is certainly worth observing at this time, as the company has what it takes to gain back its laurels.